Players Seek to Tie ABS to Social Goals

Securitization is not typically associated with environmental or social investing, but speakers on one panel of Information Management Network's ABS East expressed confidence that the industry will come around to this field’s potential.

Socially minded investments “don’t have to be a small, nichey portion of [investors’] holdings,” said Stephen Liberatore, a portfolio manager at TIAA-CREF. He cited the $650 million CMBS that helped finance the construction of One Bryant Park as an example of how securitization can help make real estate greener. The Bank of America Merrill Lynch headquarters boasts a Platinum certification in the U.S. Green Building Council's Leadership in Energy and Environmental Design (LEED), the gold standard for environmentally friendly buildings.

Outsourcing the green or social label to a specialized entity — such as the LEED rating system — forms the kind of social due diligence that is critical for successfully completing a transaction, according to Christopher Flensborg, from the capital markets team of SEB Merchant Banking, which operates principally in Northern Europe.

In terms of which segments of the market are driving “green” bonds, Flensborg said that asset managers in the U.S. were ahead of their counterparts in Europe but that European governments were more aggressive than ours.

However, anecdotal evidence suggests that certain kinds of U.S. investors are more motivated than others. David Castillo, senior managing director at Further Lane Securities, said that the smaller, nimbler hedge fund buyers he was speaking to were keener than larger investors to allocate a portion of their portfolio to socially or environmentally minded investments.

Liberatore pointed out that for a socially conscious investor, going the route of fixed income makes the most sense. “You know exactly what you’re funding,” he added.

The panelists saw a number of areas where securitization can play a role in green bonds.John Joshi, a member partner at both Ice Capital Partners and CapitalFusion Partners, noted that there still has not been a solar energy-related securitization in the U.S.

Areas he thought players might want to look into included renewable energy leases and green mortgage-backed securities. Real estate clean energy production could be fodder for ABS as well. “You can strip out the element of the rooftop that has an energy potential and separate it from the real estate value and bundle it,” he said. “You can create an easement trust security.&rdquo

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